London Gold Market

For gold traders in the United States, the day starts in London. The five members of the London gold market have come to an agreement of their morning gold fix before traders on the East Coast have had their first cup of coffee. The five members of London gold market will have assessed demand and supply for that day by that time. They will have also established a price that they believe will be adequate to match the buys and sells steaming in from commercial brokerages, refiners, internationally-based commercial banks, central banks, bullion dealers and traders, and mining companies. If the buys exceed the sells in enough amounts, the price goes up. If what happens is the opposite, the price goes down, logically.

London has become an increasingly important gold trade center in recent years, making headway in the direction of its old position at the head of the gold trading table, a position which both Zurich and COMEX in New York have lost. The reasons are the following: London is where the world’s central banks and the bullion banks have set up shop for their gold deposit, lending, and derivative operations. London is the home to the London Bullion Market Association that trades very high amounts in both physical and paper over-the-counter transactions. Terry Smeeton, who at one time headed the gold and foreign exchange operations for the Bank of England, estimates that the volume in London is 7.5 million ounces per day. The London market offers both forward and spot sales. Forward sales represent gold sold by contracts in the future at a price agreed upon. Spot sales represent gold sold at the posted London price, with the London market serving as the go-between.

The five men who set the London fixes represent the oldest, largest, and most influential banks and gold dealers in the world: N.M. Rothschild (which provides the group’s chairman), Society General, the Hong Kong Shanghai Bank (HSBC), Scotia Mocatta, and Deustche Bank. They set two fixes each day. The first, at 10:30 London time, is known as the A.M. fix, this is the one which is usually announced on American radio networks as you head for work in the morning. The P.M. Fix is set after lunch. The five men meet in the offices of N.M. Rothschild under the watchful eye of the founder himself, Nathan Rothschild, whose portrait hangs appropriately in the conservatively appointed trading room. All business is done under the London Code of conduct for bullion dealers.